asked 213k views
5 votes
What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income

asked
User Mikael
by
7.6k points

1 Answer

3 votes

Answer:

A decrease in the tax rate of interest income would increase the supply of loanable funds, because they would now be more profitable, since the bondholders would now have to pay less taxes.

It would also increase demand, because interest income is a source of income for households and firms, and if they pay less tax on that income, they will have more overall income available, for both consumption and investment.

answered
User Viktor K
by
8.0k points
Welcome to Qamnty — a place to ask, share, and grow together. Join our community and get real answers from real people.